The Canadian dollar fell today as the negative influence of the current account deficit and unchanged interest rates outweighed the positive influence of the growing economy. The currency advanced against the greenback, which was crippled by the bad economic reports from the US.
Canada’s gross domestic product expanded 0.3 percent on a monthly basis in the first quarter of this year. That’s better than forecast of a 0.2 percent growth and much better than the decline by 0.1 percent in the previous quarter. The report about the current account showed a deficit of C$8.9 billion in the first quarter of 2011, overshadowing the positive GDP influence on Canada’s currency. The deficit was lower than C$10.3 billion in the fourth quarter of 2010, but still was much bigger than expected C$2.9 billion.
The Bank of Canada maintained its benchmark overnight rate at 1 percent. This decision support opinion that the current economic conditions is bad for Canada’s economy and currency. The statement about the bank’s decision brought some hope, though, hinting about possible increase of the borrowing costs in the near future:
To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 per cent inflation target. Such reduction would need to be carefully considered.
USD/CAD fell to 0.9675 from 0.9683 as of 5:16 GMT today. EUR/CAD rose to 1.3958 from 1.3939, while CAD/JPY fell to 83.92 from 84.12.
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